BusyMarkets Kampala #008: The USD losing its grip of East Africa

The Ugandan shilling traded stable against the dollar due to muted demand for dollars from importers and within the interbank market. The outlook reflects a weaker shilling to me, largely because the biggest Ugandan companies are foreign owned and with the closure of 2022 books it implies that proceeds/profits are paid through transfers in foreign currencies.

Dollar weak but European currencies to grow in demand

There will be a bigger demand for Euros when French/ Belgian owned banks are paying owners. There will be a bigger demand for Great British pounds when British owned banks like ABSA Africa are paying owners. Same analogy will apply for other European currencies at the expense of Uganda Shilling. Secondly the protest in Kenya. The United States has issued a security alert to its citizens, warning them of countrywide anti-government demonstrations.

Such notices could have a knock-on effect on investments and tourist inflows, exacerbating the shortage of much-needed foreign exchange. Kenyan exports will also be affected.

The protest has affected the transportation of goods on the Northern Corridor, which links Kenva to the rest of eastern Africa. Uganda is Kenya’s biggest trading partner. Kenya exports $800m worth of goods to Uganda annually. Besides the direct effects on Kenya’s exports to Uganda, there will be knock-on effects on neighboring countries such as landlocked Uganda.

Kampala largely depends on Kenya’s Mombasa port for essential goods, including petroleum products. Rwanda, DRC, Burundi and South Sudan depend to the Mombasa port too. But all hope isn’t lost for the investor since talks between Ruto and Raila began on the 3^rd April, 2023. And for the first time ever in Russia, the most traded currency is the Chinese yuan.

That’s good news for developing economies like Uganda’s which are largely dependent on United States dollar (USD). The less preferred it is for the international community the more available the pegged currency becomes for traders in the East African region.

What is new in the stocks market?

The Board of Directors at UMEME recommended a final dividend of Ushs 63.9 per ordinary share be paid for the year ended 31 December 2022, subject to the approval of shareholders at the Annual General Meeting scheduled for 18th May 2023. As usual the dividend, which is subject to withholding tax, and will be paid on or about 20th July 2023

The Directors at Stanbic Bank Uganda resolved to recommend to shareholders at the forthcoming annual general meeting, a final dividend for the year ended 31 December 2022 of UShs 3.61 per share amounting to UShs 185 billion, in addition to UShs 50 billion that was paid last yaer. This final dividend will be paid upon receipt of regulatory approval.

DFCU consolidated financial statements were approved by the Board of Directors on 29 March 2023. The Board is proposing a dividend of Shs 8.19 per share less withholding tax.

Equity Bank PLC being one of the stocks with big regional interest, says a dividend of Kenya Shillings four (KES 4.00), for each ordinary share on the issued and paid-up share capital of the Company for the financial year ended 31 December 2022. Subject to Shareholders’ approval, the dividend will be payable on or before 30th June 2023, to the members of the Company on the share register of the Company on the closure date of 19th May 2023.

Which brings me to the conclusion that UMEME shareholders will be smiling this year as they seemingly realized the best ROI compared to the other listed companies on USE.

The Money markets outlook

The overnight money was trading at an average of 11.5% compared to the one-week money that was trading at an average of 12%. There is no auction of government paper this week therefore we are likely to see more activity in the secondary market. But the treasury bill auction will be back on 12^th April 2023 with 91 days, 182 days and 364 day papers.

My prediction is 10.8%, 11.00% and 13.5% for the three treasury bills respectively. I predict the rates to slightly peak by 0.5%, because of the looming short term inflation and distress of the UGX. The interest rates have held steady or even seemed unchanged the whole fortnight. Below are the prevailing interest rates for Treasury Bond government papers.

Seth Nuwagaba is an investment banker at one of the biggest banks in East Africa.